Companies could face suits for paying for positive online reviews

Glowing online consumer reviews are music to any company’s ears. But some companies will go farther than others to procure such positive comments.

For instance, in March 2011, the Federal Trade Commission (FTC) announced that Legacy Learning Systems Inc., the maker of a popular series of guitar-lesson DVDs, would pay $250,000 to settle charges that it deceptively advertised its products by paying online marketers to pose as ordinary consumers and write positive reviews of its products.

Experts say such settlements are a precursor to more FTC action in the future. Gartner Inc. analysts predict that in the next two years, the agency will pursue litigation against at least two unnamed Fortune 500 companies for paying for false reviews.

The trend is disheartening to consumers, but it’s also concerning to in-house lawyers. “This is something that could seriously hurt your company’s reputation,” says Jenny Sussin, senior research analyst at Gartner.

Still, some companies are pressured to buy online critiques because consumers heavily rely upon peer reviews to make their purchasing decisions.

“Sixty-three percent of consumers are more likely to make a purchase from a site where there are user reviews,” says Sussin. She adds that “50 or more reviews on a product can mean a 4.6 percent increase in conversion rates,” which are the proportion of site visitors who take action beyond just viewing a site’s content.

“Businesses have substantial financial interest in making sure that they have a robust portfolio of consumer reviews, given that so many people are checking them,” says Eric Goldman, a professor at Santa Clara University Law School. “There needs to be a critical mass of reviews so that consumers believe they have credibility, and the reviews need to be favorable so that it looks like the business is a good provider.”

Goldman says businesses also like the idea of having their offerings “go viral.” “They want there to be an organic groundswell of consumers excited about their offerings and evangelizing them to their peers,” he says. “Some businesses think they can jump-start that process by having it look like ordinary consumers are raving about a product and hoping that that catches fire among other consumers and then snowballs from there.”

Facing pressure to establish a strong consumer following, businesses will post ads on sites such as Craigslist, Amazon Inc.’s Mechanical Turk, Freelancer and Fiverr seeking people who will write short, positive endorsements, for which they will fork over anywhere between $1 and $200, Sussin says.

The Government’s Take

In 2009, the FTC published a guide governing endorsements and testimonials in which it clarified that paying for positive reviews without disclosing that reviewers had been compensated is deceptive advertising, and it will prosecute such practices in the same way.

“The FTC has made its position entirely clear,” Goldman says. “Consumer reviews need to represent the authentic view of the people providing them. The FTC has decided that it’s going to fight the battle of trying to maintain content authenticity online. As a result, they are looking for opportunities to punish folks who are not playing by those rules.”

Aside from FTC action, Cooley Partner Janet Cullum says companies could face consumer backlash. “The FTC may go after a company for fake reviews, and then right away, consumer class actions could be filed on top of it,” she says.

Goldman says that in the U.S., review sites can’t be held liable for any fake, paid-for reviews posted to them. That’s because 47 U.S.C. 230, a statute Congress passed in 1996, essentially says websites aren’t liable for third-party content.

U.K. agencies, however, have penalized sites for containing false reviews. In February 2012, after a four-month investigation, the Advertising Standards Authority (ASA) found that TripAdvisor’s lack of user-verification steps allowed reviewers to post nongenuine content to the site. The agency ruled that TripAdvisor’s U.K. site could no longer claim that its reviews were honest or from real people. The ASA took similar action in November 2012 against the U.K.-based airline review site Skytrax, finding that the site couldn’t assert that its reviews were “checked” and “trusted” as it had claimed because it didn’t take “all reasonable steps to ensure that reviews were checked, trusted and made by ‘real’ people with ‘real’ opinions.”

“If review sites are advertising that they’re credible, but they’re not actually policing reviews, that could be a problem overseas,” Goldman says. “Here in the U.S., that’s probably still protected by Section 230.”

Fighting Back

Even though Yelp can’t be held liable for false endorsements reviewers post to its site, it is doing a lot to thwart such reviews.

“Yelp has an algorithm that tries to detect fake reviews, and it hides those reviews when it believes they are not credible,” says Eric Goldman, a professor at Santa Clara University Law School.

According to the New York Times, Yelp contains more than 30 million reviews; the site’s internal filters determine that one in every five new reviews is dubious.

Yelp announced in an October 2012 blog post that, going forward, when it determines a business has engaged in significant attempts to pay for positive reviews, it will post a consumer alert to the business’s Yelp page for 90 days with the following warning: “We caught someone red-handed trying to buy reviews for this business. We weren’t fooled, but wanted you to know because buying reviews not only hurts consumers, but also honest businesses who play by the rules.”